UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
SECURITIES ACT OF 1933
Release No. 7503 / February 2, 1998
SECURITIES EXCHANGE ACT OF 1934
Release No. 39612 / February 2, 1998
ADMIN. PROC. FILE NO. 3-9542
ADMINISTRATIVE PROCEEDINGS INSTITUTED AGAINST COUNTY OF NEVADA, CITY OF
IONE, WASCO PUBLIC FINANCING AUTHORITY, VIRGINIA HORLER, AND WILLIAM MCKAY
On February 2, 1998, the Securities and Exchange Commission
("Commission") issued an Order Instituting Public Administrative
Proceedings against three central California municipalities and two
professionals for causing or committing securities fraud in connection with
the sale of $58 million in municipal bonds. The Order names the County of
Nevada ("Nevada County"), the City of Ione ("Ione"), the Wasco Public
Financing Authority ("Wasco"), Virginia Horler ("Horler"), of Dain Rauscher
Incorporated (formerly known as Rauscher Pierce Refsnes), and William McKay
("McKay"), a real estate appraiser. The Order alleges that the
municipalities and individuals created and approved written materials, used
in selling the bonds, that fraudulently misstated or omitted important
information.
Last July, the Commission sued the underwriter of the offerings, First
California Capital Markets Group, and two of its executives, H. Michael
Richardson and Derrick Dumont, in the United States District Court for the
Northern District of California. See Lit. Rel. No. 15423. That litigation
is pending.
Nevada County raised $9.07 million through the sale of "Mello-Roos"
bonds, which are used to finance real estate development. The Order
alleges that the Official Statement for the Nevada County offering
contained misrepresentations and omissions concerning: (1) the value of the
property to be developed; (2) the developer's ownership interest in the
property; (3) the developer's experience and financial condition; (4) cost
estimates to complete the project; and (5) how the project would be
financed by the developer and Nevada County. The Order further alleges
that Horler, Nevada County's financial advisor, drafted the Official
Statement, which was reviewed by Nevada County staff and officials, and
approved for distribution by resolution of the County Board of Supervisors.
Ione raised $14 million in two "Mello-Roos" bond offerings. The Order
alleges that the Official Statements for the Ione offerings contained
misrepresentations and omissions concerning: (1) the ability to complete
all of the listed improvements with the offering proceeds; (2) the value of
the property to be developed, and (3) the sufficiency of the developer's
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capital to complete the project.
The Order further alleges that McKay prepared the appraisals for both
Nevada County and Ione, as well as summaries of each which he knew were to
be included in the Official Statements for the offerings.
The misrepresentations and omissions in the Nevada County and Ione
Offering Statements were important to investors because they made the
projects and the bonds appear to be less risky than they actually were.
The Wasco offering, which raised $35 million, involved the sale of
"Marks-Roos" municipal bonds, which are issued to form pools of money to
finance a number of local projects. The Order alleges that the Official
Statement for this offering failed to disclose that nearly all of the
projects listed were highly contingent, if not speculative. These
misrepresentations were important to investors because they falsely created
the impression that the pools were fully allocated to particular projects.
Because the projects were speculative, there was a greater risk to
investors that the bonds would not be repaid with interest.
The Order alleges that Nevada County, Ione, Wasco, Horler and McKay
violated the antifraud provisions of the federal securities laws, including
Section 17(a) of the Securities Act of 1933 and Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 issued thereunder.
An administrative hearing will be scheduled to litigate the
allegations and determine whether the Commission should order any remedial
action.
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